Sources and Nonlinearity of High Volume Return Premium: An Empirical Study on the Differential Effects of Investor Identity versus Trading Intensity (2020-2024)
Abstract
Chae and Kang (2019, Pacific-Basin Finance Journal) documented a puzzling Low Volume Return Premium (LVRP) in Korea -- contradicting global High Volume Return Premium (HVRP) evidence. We resolve this puzzle. Using Korean market data (2020-2024), we demonstrate that HVRP exists in Korea but is masked by (1) pooling heterogeneous investor types and (2) using inappropriate intensity normalization. When institutional buying intensity is normalized by market capitalization rather than trading value, a perfect monotonic relationship emerges: highest-conviction institutional buying (Q4) generates +∈stitutionLedQFourDayPlusFiftyCAR\ cumulative abnormal returns over 50 days, while lowest-intensity trades (Q1) yield modest returns (+∈stitutionLedQOneDayPlusFiftyCAR). Retail investors exhibit a flat pattern -- their trading generates near-zero returns regardless of conviction level -- confirming the pure noise trader hypothesis. During the Donghak Ant Movement (2020-2021), however, coordinated retail investors temporarily transformed from noise traders to liquidity providers, generating returns comparable to institutional trading. Our findings reconcile conflicting international evidence and demonstrate that detecting informed trading signals requires investor-type decomposition, nonlinear quartile analysis, and conviction-based (market cap) rather than participation-based (trading value) measurement.
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